Investing for growth

21 September 2016

Growth investing is all about buying assets that will hopefully increase in value over time.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • What is growth investing?
  • What types of investments have growth characteristics?
  • How to use shares and funds to grow your capital?

Rather than looking to make a regular income from your investments, you are hoping for a long-term gain.

Remember that all investing comes with risk and you could get back less than you put in. If you’re not sure whether investing is right for you, seek independent advice.

What is growth investing?

The fundamental focus of growth investing is not to make a regular income but to enjoy long-term capital returns. A growth investor with, for example £2,000 to invest might be looking to turn that sum into £3,000 over time. As such, the goal is to increase your money by investing in ‘growth’ companies whose shares should hopefully rise in value. Of course, the risk is that they could fall, and you could lose money.

Growth funds

For most investors, and certainly novices, looking to invest in growth stock fund can be a good starting point. When you invest in a fund, your and other investors’ cash is pooled together, and managed by a professional fund manager, who will pick and choose assets on your behalf. Funds typically have a wide spread of investments which helps to diversify risk. For example a UK growth fund will generally have investments across a range of stocks from a wide variety of different British industries. There is a huge selection of funds to choose from, and each one has its own objective. Some will invest exclusively in UK blue chip companies, while others might focus on the US or Europe. In many cases, funds consist of a single asset type, such as either shares or bonds but others, namely multi-asset funds, invest in a wide variety of different assets including shares, bonds, cash and sometimes commodities.

Find out more about funds

Growth shares

The primary attraction of buying funds is that it is a very simple way to achieve instant diversification, as you get access to a large number of shares via a single investment. However, if you are an experienced investor and have time to monitor your investments, you could create your own portfolio of growth stocks which you select yourself. But remember that investing in individual stocks is very high-risk and if a company’s share price falls, you could lose some or even all of your money. If you are thinking of taking this route, it is highly recommended that you don’t put all your eggs in one basket and that you invest across not only a wide range of stocks but other asset classes too.

Whether you choose to invest in growth funds or in individual stocks and shares, you’ll need to be prepared to stick with your investments for the long term - at least five years - and preferably much longer. That’s because it is hoped that this will give your investments enough time to recover from any possible downturns, although you could get back less than you put in however long you hold your investments.

Find out more about how to spot a long-term winner

How dividends can boost your returns

Many firms which are looking to grow their business will pay a dividend to their shareholders and this income can prove to be a potentially great boost for growth investors. Whether you are investing in individual shares or via a fund, bear in mind that if there is income on offer, you don’t have to take it. Instead you can choose to reinvest these dividends, or in other words, you can use the money to buy more shares or units in a fund, which could help increase your long-term returns.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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